5 Steps for Preventing Expense Fraud

While there are benefits to giving your executives and upper management employees company credit cards or reimbursing them for the expenses they incur while on business trips and wining and dining clients, using that credit card for personal expenses can sometimes prove too tempting to resist, even for employees who mean well.

While the occasional round of cocktails or pay-per-view movie might not be enough on its own to set off any alarm bells, those small expenses can add up quickly.

Punishing employees who abuse their expense account comes with its own expenses, and it’s a hassle, so you’re better off preventing expense fraud before it starts, so let’s talk about some ways you can do that.

1. Maintain Clear Expense Reporting Policies

Employees are less likely to run into trouble with their expense accounts if they have clear guidelines for reporting their expenses. The number and type of guidelines you need will depend on the size of your company, but a good starting point is:

• Require expenses to be reported within a certain timeframe of having incurred the expense (usually 30-60 days);
• Require receipts for all purchases over a certain amount ($25 is pretty standard, but you can go higher or lower depending on your circumstances);
• Require itemized reports for expenses that fit under multiple categories. For example, a hotel bill might include pay-per-view movies, which should go under “entertainment,” and/or room service, which should go under “meals”).

2. Be Proactive About Alerting Your Employees to Expense Reporting Policies

Most companies put their expense reporting policies in the employee handbook, but most employees don’t read the employee handbook all the way through, much less refer to it when they’re getting ready to report their expenses.

To help prevent violations of expense report policies, you can implement a system with your policy violations built into it. This allows the system to automatically highlight policy violations and identify duplicate transactions before the employee hits “submit.” Not only does this system of immediate feedback help prevent violations of your expense reporting policies, it also lowers the burden on supervisors and your accounting department when it comes to identifying and alerting employees to expense fraud.

3. Include Multiple People Involved in the Review and Approval Process

The more people involved in the review and approval process, the less likely you are to have to worry about expense fraud, but that doesn’t mean you should add people to the process just for the sake of getting more eyes on each expense report. Instead, consider who needs to be involved in reviewing and approving each expense. For example, when working on certain projects, it might make sense to have project-specific managers reviewing and approving expenses, in addition to general managers.

4. Make Data Your Friend

Your expense-report platform should be able to create charts and graphs so you can quickly and easily get an idea of whether employee expenses are trending up, down, or staying the same. While a sudden spike in expenses could be nothing more than a new project, or an employee seizing new opportunities for the business, it could also be a red flag for expense fraud, and having that visual representation of your employees’ expenses can be a great way to catch those red flags early on before they become a serious problem for the company.

5. Preventing Fraud Starts at the Top

When you run a company, no matter how large or small, you’re the one responsible for setting the tone for everything from how you treat clients to how company expenses get reported. So be sure to set a good example for your employees and be proactive about preventing expense fraud by putting systems and policies in place to protect your budget for employee expenses.

A good accounting system is also a great way to prevent expense fraud, and catch it early if it does happen. Whether you need to put a new accounting system in place or strengthen your existing system, it can help to talk with a certified accountant. Just reach out now to schedule your appointment with the Bookkeeping Doctor.